Boeing (BA) has encountered another problem—this time with its wide-body twin-aisle 787 Dreamliner planes. Some Dreamliner recipients raised production quality issues with the jets built at Boeing’s South Carolina plant. Citing some leaked documents, The Post and Courier reported the news on August 4.
Airlines have concerns about Boeing’s Dreamliner
According to the report, KLM Royal Dutch, Etihad, Eva Air, and Singapore Airlines have pinpointed several production loopholes and poor quality. The four international air carriers stated that production mistakes are “unacceptable.”
In the survey, KLM highlighted several issues including loose nuts, a loose seat, an unsecured fuel line clamp, missing or wrongly installed cotter pins, and several other missing parts. According to The Post and Courier, KLM asked Boeing, “Who looks at quality in this facility?” The airline also said that it “is worried for the next deliveries.” KLM received its first delivery of the Boeing 787-10 Dreamliner on June 30. The company has ordered 15 of the planes.
The newspaper claimed that it received copies of over a dozen airline surveys. However, the newspaper didn’t disclose how it got the leaked papers. Boeing usually conducts internal surveys after it delivers any new 787 Dreamliners to its customers. The stock was trading 2.2% down in the pre-market trading session on Monday.
In a statement, Boeing said that its customers “continue to express great confidence in the 787,” according to The Post and Courier. The company also said, “Boeing and our customers demonstrate the highest standards of safety and quality, which is evident by the 787 Dreamliner’s excellent record of safety and reliability in-service.”
More trouble for Boeing’s Dreamliner
The poor production quality concerns will likely increase Boeing’s problems. In April, the New York Times raised questions regarding the production process at the company’s South Carolina plant. Citing the company’s internal emails, documents, and federal records, the newspaper said that there was “shoddy work” and “flawed quality control” at the plant.
The New York Times stated that managers push employees to finish work quickly to avoid production delays. They even ignored the safety alarm raised by employees. The report also claimed that the FAA confirmed receiving three complaints from South Carolina plant workers since last September. Following the report, the US Department of Justice subpoenaed Boeing in early July and sought records related to the 787 Dreamliner production at its South Carolina plant.
Boeing is already facing declining commercial aircraft deliveries due to a flying ban on its fast-selling 737 MAX planes. Globally, air carriers have denied taking shipments since mid-March following two deadly crashes within five months. As a result, Boeing’s overall commercial aircraft shipment fell 54% YoY to 90 units in the second quarter.
If Boeing loses customers’ trust for another model jet, its deliveries could fall significantly, which would hurt its upcoming quarterly results. Among major US airlines, United Airlines (UAL) and American Airlines (AAL) own a significant number of Dreamliners. Currently, United has 46 Dreamliners, while American Airlines operates 42 of the planes. United Airlines and American Airlines have placed orders for other 18 and 47 Dreamliner jets, respectively. Air Lease Corporation (AL) has ordered for 56 Dreamliner planes.
Boeing’s stock performance
Rising safety concerns about the Dreamliners could create more problems for Boeing. The stock has already fallen significantly in the last four months due to the 737 MAX fiasco. The stock was riding high at the beginning of the year. Boeing stock has gained 31% as of March 8. However, following the Ethiopian Airlines crash on March 10, its YTD gain has eroded to a mere 5.3%.
Boeing stock has underperformed the broader market and the iShares U.S. Aerospace & Defense ETF (ITA). The Dow Jones and the S&P 500 indexes have gained 13.5% and 17%, respectively, this year. ITA has returned 22.2% YTD. The ETF has exposure to assemblers, manufacturers, and distributors of aerospace and defense equipment companies.